Hospital prices vary wildly for common treatments

Some heart surgeries have become so common — the angioplasty, for example, to open clogged arteries — you might think the charge for it wouldn’t vary much from hospital to hospital.

You might assume the same about hip or knee replacements, which now hold the top spot in this country as the reason for overnight hospital stays by Medicare patients.

You would be so wrong.

Sticker price for the 100 most common treatments and procedures for Medicare inpatients in 2011 varied dramatically among hospitals across the country, and even across towns, according to a recent federal report that shines at least some light into the often-impenetrable world of American hospital pricing.

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In Seattle, for example: Swedish Medical Center/Cherry Hill charged about $134,000 on average for one type of angioplasty, while just a few blocks away at Virginia Mason Medical Center the average price was less than $55,000.

And while the average charge for hip or knee replacements at the University of Washington Medical Center was just under $32,000, it was nearly three times that at MultiCare Good Samaritan Hospital in Puyallup, 40 miles away.

The report has sparked pointed questions from patients and policymakers about hospital charges — why they vary so drastically from place to place, how they’re set, and why they’re so much higher than a hospital’s actual costs or the payments it receives from insurers.

And then there’s this question: Will knowing what a hospital charges help patients?

Federal officials, proud of this first-ever national comparison, say yes. They note that patients have long found it nearly impossible to pry any useful comparative pricing information from hospitals and doctors.

A hospital charge is like the price a rug salesman at a bazaar first throws out to a buyer, says Dr. Ezekiel Emanuel, who chairs the University of Pennsylvania’s department of medical ethics and health policy. “He doesn’t think that’s the cost of that rug. He thinks that’s the starting price for negotiations.”

Even so, Emanuel, like many health-policy experts, says he believes information about charges is a necessary first step toward a valuable goal: transparency in health-care costs.

And even those who question the value of charge information note the report contains other numbers that could help patients compare different hospitals for particular procedures.

Seattle-area hospitals, while insisting that charges are largely meaningless because they’re not what insurers or most patients end up paying, were nevertheless quick to provide explanations when their own charges were high or low.

Swedish, pointing to its destination Heart & Vascular Institute, says its average charges, often the highest in the area, reflect the high numbers of complicated cases it handles.

Virginia Mason, on the other hand, says its low charges reflect a commitment to eliminating unnecessary tests and procedures, inefficient use of staff and sloppy supply ordering.

Emanuel and other policy experts say that for charge information to be useful, patients must also be able to compare hospitals’ quality.

“I think it can confuse the matter, potentially, because some people will think that higher charges are a proxy for higher quality — and that is definitely not the case.”

Rising charges

Once, long ago, what hospitals charged for a particular procedure was more in line with the cost to provide it, and what patients ended up paying.

But over time, hospital charges have been driven up by a variety of factors — including Medicare and insurance rules, the hospital’s location, its share of the market for particular types of care, how much it advertises, and even how it calculates its write-offs to charity when patients can’t pay.

Despite the disconnect between charges and costs, the report — and a later one showing similar variations in outpatient charges — does include information that may help patients choose a hospital for elective procedures.

First, the numbers reveal how often each hospital treated patients with each diagnosis — useful for patients searching for an experienced surgical or medical team.

The report also lists actual Medicare payments to hospitals, which most private insurers use as a base in determining how much they will pay.

Those numbers may help patients concerned about their own share of the bill choose a hospital, said Mike Fitzgerald, chief financial officer for the Franciscan Health System, whose hospitals had some of the lowest Medicare payments.

That’s relevant to insured patients who pay a percentage of their bill, he said, because their share will be figured on the negotiated payments, not on charges.

And charges — as the data shows — are often not even close to payments.

For example: At St. Joseph Medical Center in Tacoma, a Franciscan hospital, average charges for care of patients with hypertension were $33,400 — more than 7½ times the amount Medicare reimbursed the hospital.

Lower charges, though, don’t mean payments necessarily will be lower. Even though Virginia Mason’s charges for cardiac care overall were the third lowest in the Seattle area, it received the third highest payments from Medicare.

Many hospitals with high charge-to-payment ratios were in the South Puget Sound area.

Franciscan’s Fitzgerald and MultiCare spokeswoman Marce Edwards said their higher charges reflect the relatively poor health of the area’s patients, who may need more intensive care. Charges in general also can rise, Fitzgerald said, when a hospital must compensate for relatively high numbers of patients who can’t or won’t pay.

Virginia Mason’s CEO, Dr. Gary Kaplan, was skeptical of these and other explanations for high charges.
“There are explanations that refute every single one of those as the driver.”

Hospitals won’t reduce prices, he said, until the public demands they lower costs by becoming more efficient.

Charity write-offs

So if charges have become disconnected from costs or payments, why don’t hospitals just make them more realistic?

One reason may be that hospitals have historically used charges as the basis for calculating how much they can write off as charity when patients can’t pay their bill.

Providing charity care makes hospitals look good and the write-off typically will be larger if it’s based on charges rather than actual cost.

Some hospitals say the disconnect is an artifact of decades of complex Medicare rules and changes, and won’t be easy to eliminate.

At one time, before Medicare and commercial insurers got into the game and patients paid directly, charges and costs were essentially the same thing. But when insurers began paying, that began to change.

At first, said Suzanne Anderson, chief financial officer for Virginia Mason Medical Center, hospitals made sure their charges were a little higher than the “usual and customary” costs of care in a geographic area, because Medicare paid the lower of the two.

“That has snowballed over decades, to the point in time where pricing makes no sense at all,” Anderson said.

Price transparency

Some experts think that even though charges may be unrealistic numbers, making them available is a step toward price transparency — a concept that’s gaining traction as insured patients bear ever-increasing shares of health-care bills and employers search out better values.

At a recent meeting, Julia Patterson, a member of the Metropolitan King County Council, complained that no one really understands how hospitals determine charges. “You’re going to hear elected officials talk more about this,” Patterson warned hospital administrators.

“I think we need to start being more transparent when we talk about what we’re charging.”

Others believe transparency has its limits.

Aaron Katz, health-policy expert in the University of Washington’s School of Public Health, says he doubts it actually would spur

more comparative shopping.

Patients making important decisions about their health, he believes, are likely to put more weight on the recommendations of trusted friends or doctors than on price.